Higher Pay Rates, Not Just Jobs, Will Help Fix the Economy for Good

We have a wealth problem in the United States. There is a ton of wealth in the top 2% of America yet the other 98% of Americans are shrinking into more poverty.

Why is this happening? Is it that there are not enough jobs? No, there are a lot of jobs. The problem is that most of the jobs are at minimum wage or close to it and do not have much opportunity to go up.

This then keeps people living pay-check-to-pay-check without ever being able to save money or make big investments, like buying a home. Here’s some simple math:

A person on the current minimum wage makes $7.25 per hour. If the person works 40 hours a week they will earn a gross income (before taxes) of $290 and $1,160 a month. A one bedroom apartment in Los Angeles is averaging about $1,400 a month. Let’s not even mention the costs of gas, insurance, internet, cell phone bill, utilities, entertainment, food and the feared medical emergency.

Now let’s assume the $15 per hour minimum wage takes hold. The person would then make $600 a week gross income (before taxes) and $2,400 a month. Now they can afford the apartment and a bit more.

But Ramsey, won’t raising the minimum wage cause job losses, businesses to fail, the economy to collapse and the core of the earth to go cold? (Insert terrified emoji here.)

The answer is simply no. Although businesses will have to shell out more money to employees, these employees live in the United States of America where spending money is what we do.

Since we were very young, the media has conditioned us to think that money burns holes in our pockets and we need to spend it right away. Most people on this land adhere to that notion, so the vast majority new money earned will then be circulated into the economy and go right into the earnings reports of these businesses. That means more profits for businesses overall since more people will be able to buy their products and/or services.

For instance, Walmart, one of the biggest employers in the country, is one the biggest opponent to the raise in minimum wage. Its shareholders do not want to see profits go to employees.

But what Walmart fails to realize is that most of its employees shop at…(drumroll)…Walmart! This means that not only will more money return in the form of sales and profit but the general population will also be able to spend more in the store as well because everyone will have more money to spend.

So despite former President Obama always touting the job growth during the economic fiscal years of his presidency of which we are still in, despite Trump taking the credit even though his fiscal quarter begins next month, both of these guys have gotten it very wrong: more minimum-paying jobs will not help the economy, higher pay rates will.

The rich 2% in this nation have had record-breaking profits and earnings year after year while the rest of the population struggle with bills and have to supplement their low incomes with credit cards, stress and fear. It is time for the rich to realize that they will lose big as well if they decide to turn our country into some developing world where no one will be able to buy their products and services en masse.

Remember that story about how a kid saw a hole in the wall of a dam with water leaking through it and he plugged it with his finger in order to prevent the whole dam from breaking apart flooding his town below? Well there’s some big leaks in this economy and the stifling of the wealth by the rich will definitely cause the wall to break and destroy the economic backbone of this country.

Spreading some of the wealth will rebuild the US into the economic powerhouse it once was after The New Deal when the rich were forced to care about the people whose hard work got them those riches in the first place. It is time for a new New Deal if this country ever plans on surviving into the future.

Ramsey Judah is broker with The Judah Group and can be reached at ramsey@TheJudahGroup.com and @RamseyJudah on Twitter and Instagram.